ANSWER BOOKLET

BFN2084 Term 2020

Final Exam Take Home Test
3 March 2021
10am -10pm

Student ID 1181100269 Sweethaa A/P Arumukam

Student Name
@ Arumugam
Section / B01 (Dr Yap) / B02 (Dr Thai) Lecturer
Dr Thai Siew Bee
Group Please circle your section. Name

QUESTION MARKS*
*
Question 1

Question 2

Question 3

Question 4

Question 5

TOTAL*

*for Lecturer usage.

Kindly save your answer booklet in PDF format as follow:

Student ID_ Subject Code _ Final Term 2020
Example:1191234567_BFN2084_Final Term 2020
 
Question 1
a) Georgia, a widow, has take-home pay of RM1,400 a week from her part-time job. Her
disability insurance coverage replaces 60 percent of her earnings after a four-week waiting
period. What amount would she receive in disability benefits if an illness kept Georgia off
work for 15 weeks?
(5 marks)
Amount of Disability Benefits:
=RM1,400 * 0.60
=RM840 a week

Off work for 15 weeks- 4 weeks waiting periods:

=11 weeks * RM840
=RM9,240

b) Ariana’s health insurance policy includes a deductible of RM1,650 and a coinsurance

provision requiring her to pay 20 percent of all bills. Her total bill is RM10,600. What is
Ariana’s total cost?
(8 marks)

= Coinsurance expenses = Total expenses − Deductible

= RM10,600 − 1,650 = RM8,950

Insured's cost = Deductible + (Coinsurance percent × Coinsurance expenses)

= RM1,650 + (0.20 × RM8,950)
= RM3,440
c) You are a dual-income, no-kids family. You and your spouse have the following debts:
Mortgage = RM190,000; Auto loan = RM10,000; Credit card balance = RM2,000; and
other debts = RM4,000. Further, you estimate that your funeral will cost RM6,000. Your
spouse expects to continue to work after your death. Using the Dual Income No Kid
(DINK) method, what should be your need for life insurance?

(7 marks)

= funeral expenses + [1/2 × (mortgage + auto loan + credit card balance + other debts)]
= RM6,000 + [1/2 * (RM190,000 + RM10,000 + RM2,000 + RM4,000)]
= RM6,000 + [1/2 * RM206,000]
= RM6,000 + RM103,000
= RM109,000
Question 2

a) Using the “nonworking” spouse method, what should be the life insurance needs for a
nonworking spouse whose youngest child is 5 years old?

(5 marks)

Life insurance need = Number of years until the youngest child is 18 * RM10,000
= (18 - 5) * RM10,000
= RM130,000

b) Your annual income is RM49,000. What is your life insurance need based on the easy
method? CHP 12 (5 marks)

Easy method= (Annual Gross Income * 0.7 * 7)

= RM49,000 * 0.7 * 7
= RM240,100

c) You have a gross annual income of RM71,000. Use the multiple of income method to
determine the minimum amount of life insurance you should carry. CHP 12 (5 marks)

Minimum insurance need:

= Gross Annual Income * 5
= RM71,000 * 5
= RM355,000
d) You are given the following information: CHP 16
 
Boston Equity Mutual Fund
Total assets RM 792 million
Total liabilities RM 8 million
Total number of shares   20 million

 
Calculate the net asset value for the Boston Equity mutual fund.
(5 marks)

Net Asset Value = (Value of the fund's portfolio - Liabilities) / Number of shares outstanding
= (RM792 million - RM 8 million) / 20 million
= RM784 million / 20 million
= RM39.20 per share
Question 3
a) Assume that one year ago, you bought 270 shares of a mutual fund for RM20 per share
and that you received an income dividend of RM0.23 cents per share and a capital gain
distribution of RM0.38 cents per share during the past 12 months. Also assume the
market value of the fund is now RM25 a share. Calculate the total return for this
investment if you were to sell it now. CHP 16
(12
marks)
Amount of total return= Capital gain distributions + Change in market value

Income and capital gain distributions= ( RM0.38 + RM0.23) * 270 shares

= RM164.70

Change in market value= ( RM25 * 270 shares ) - ( RM20 * 270 shares)

= RM6,750 - RM5,400
= RM1,350

Total amount return= RM164.70 + RM1,350

= RM1,514.70

b) Shelly’s assets include money in checking and savings accounts, investments in stocks
and mutual funds, and personal property, including furniture, appliances, an automobile,
a coin collection, and jewelry. Shelly calculates that her total assets are RM108,800. Her
current unpaid bills, including an auto loan, credit card balances, and taxes total
RM16,300. Calculate Shelly’s net worth. CHP 18
(4 marks)

Net worth= Assets - Liabilities

= RM108,800 - RM16,300
= RM92,500
c) Calculate how much you would have for your retirement in 20 years if you saved
RM12,000 a year at an annual rate of 8 percent with the company contributing
RM3,000 a year. CHP 8 (4
marks)

Contributions Interest Total

Annual contribution of
8% of a RM12,000 RM12,000 8%
salary
Company annual RM3,000
contribution

1st Year RM15,000 1,200 16,200

2nd Year RM15,000 2,496 33,696
3rd Year RM15,000 3,895.68 52,591.68
4th Year RM15,000 5,407.33 72,999.01
5th Year RM15,000 7,039.92 95,038.93
6th Year RM15,000 8,803.11 118,842.04
7th Year RM15,000 10,707.36 144,549.40
8th Year RM15,000 12,763.95 172,313.35
9th Year RM15,000 14985.07 202,298.42
10th Year RM15,000 17,383.87 234,682.29
th
11 Year RM15,000 19,974.58 269,656.87
12th Year RM15,000 22,772.55 307,429.42
13th Year RM15,000 25,794.35 348,223.77
14th Year RM15,000 29,057.90 392,281.67
15th Year RM15,000 32,582.53 439,864.20
16th Year RM15,000 36,389.14 491,253.34
th
17 Year RM15,000 40,500.27 546,753.61
18th Year RM15,000 44,940.29 606,693.90
19th Year RM15,000 49,735.51 671,429.41
20th Year RM15,000 54,914.35 741,343.76
TOTAL RM300,000 RM441,344 RM741,343.76
Question 4
a) What are the two common rules of measuring credit capacity? (10 marks)

The debt payments-to-income ratio and the debt-to-equity ratio are two basic principles for
evaluating credit capacity. Divide your monthly interest payments (excluding mortgage
payments) by your monthly net income to get your debt payments-to-income ratio. Divide
your total liabilities by your net worth to get your debt-to-equity ratio (excluding mortgage
payments).

b) Which type of automobile insurance is considered to be most important in Malaysia?

(10 marks)

There are three form of automobile insurance coverage in Malaysia which are third party,
third party fire + theft and comprehensive. Third party policy covers bodily injuries to a rider
or a person in another vehicle, as well as damage to another person's vehicle and property.
Third party policy does not cover hospital costs for your own injury, legal bills for your own
injuries, damages to your vehicle in an accident you caused, your car is stolen, broken, or
killed by fire, your personal possessions are damaged, and your windscreen is damaged.

As for third party fire + theft policy covers similar to third-party insurance, but it protects the
vehicle if it has been stolen, if it has been destroyed by alleged burglary (such as broken door
locks, windows, or stolen audio and accessories), and if it has been affected by fire. On the
other hand, it does not covers hospital costs for your own accidents, legal bills for your own
injuries, illness or death to you and your passenger, damages to your vehicle from an accident
you caused, personal possessions are destroyed, and your windscreen is damaged

The last automobile insurance covers for comprehensive is same as before, but also involves
crash damage to the car. Comprehensive policy does not covers your personal possessions are
destroyed, and your windscreen is damaged, resulting in injuries or death to you and your
passenger.
Question 5
a) What are the three alternatives in financing current purchases for most consumers?
Describe the trade-offs of each alternative.
(10 marks)
Consumers may use present earnings, borrow against expected future income, or use draw
on savings. Trade-offs are if present earnings are used, they are spending current income
on luxuries will eventually reduce future well-being; if funds are borrow against expected
future income, they must be spending future income now reduces funds available for future
expenses; and if draw on savings are used, depleting savings reduces emergency funds.

b) Explain the home buying process in detail? (10 marks)

The first move is to start your investigation as soon as possible. Start reading real estate
listings-related blogs, newsletters, and magazines as soon as you can. Create a list of homes
you like and keep track of how long they've been on the market. Keep track of any price
changes. This will provide you with a sense of local housing patterns.

The second step is to find out how much house you can afford. If home owners plan to make
a 20% down payment and have a modest amount of other loans, lenders typically prefer that
they aim for homes that cost no more than three to five times their average household
income. However, you should focus your decision on your own financial condition.

The third stage is to be prequalified and preapproved for a mortgage. You'll need to know
how much you can pay before you start searching for a property. Getting prequalified for a
mortgage is the easiest way to do so. To get prequalified, merely supply your mortgage
banker with some financial statistics, such as your salary and the amount of savings and
deposits you have. This details will be checked by your lender, who can advise you how
much we will lend you. This will remind you of the price range of the homes you should
consider. You will then get preapproved for credit by supplying your financial records (W-2
forms, paycheck stubs, bank account statements, and so on) so your lender can validate your
financial condition and credit.

Finding the right real estate agent is the fourth step. When it comes to buying or selling a
home, real estate agents are key collaborators. Real estate brokers have access to information
about residences and neighbourhoods that isn't widely open to the general public. Their
understanding of the home-buying process, negotiation experience, and experience with the
community you choose to move in can be highly helpful. And, most of all, having an agent
costs you less and they are charged by the fee paid by the purchaser of the property.

Phase 5 is to go house shopping and make a bid.  Continue by visiting properties in your
price range. It may be useful to take notes on any of the homes you frequent (using this
convenient checklist).  It may be difficult to recall anything about them, so you might want to
take photographs or video to assist with your recollection. Make a point of looking at the
little features of each home. For example, run the shower and see how high the water pressure
is and how long it takes to provide hot water; test the electrical system by turning switches on
and off; and open and closing the windows and doors to see whether they operate properly.
It's also vital to examine the area and make notes about items like whether the other houses
on the block are well-kept, and how busy the street is. Is there ample parking on the street for
your families and visitors? Give yourself as much time as you need to find the dream house.
Then, with the aid of your real estate agent, discuss a reasonable deal based on the valuation
of similar homes in the city. The house will go into escrow after you and the lender have
settled on a price. Escrow is the time it takes to finish the remaining steps of the home
purchase process.

The sixth step is to prepare for a home inspection. Usually, sales deals are based on a home
review of the house to look for signs of structural loss or objects that need to be restored.
Your real estate agent will usually assist you in arranging this review within a few days of the
seller accepting your bid. If the inspection shows substantial material harm, this contingency
covers you by enabling you to renegotiate or cancel the bid without penalty. A briefing on the
observations of the home inspector will be submitted to both you and the seller. You will then
determine whether or not you want to ask the seller to make any repairs to the property before
closing. You will get a walk-through of the property until the sale ends, allowing you the
ability to ensure that all agreed-upon repairs have been done.

Phase 7 is to pick a loan with the aid of a mortgage banker. Lenders deliver a diverse variety
of lending services at affordable prices, as well as a reputation for outstanding customer
service. When buying a house, you'll have a lot of concerns, and having one of our
competent, attentive mortgage bankers support you will make the task a lot simpler. When it
comes to choosing a mortgage, each home buyer has their own set of preferences. Any
individuals want their monthly expenses to be as minimal as possible. Others are concerned
with ensuring that their monthly expenses do not escalate. Others select a loan based on the
fact that they will be traveling again after a few years.

The eighth step is to get the house appraised. Lenders will make an appraiser come out and
give you an unbiased estimation of the house's worth. The appraiser is hired by a third-party
agency and is not affiliated with the investor. The valuation will reassure all parties involved
that you are paying a good price for the property.

The paperwork must be coordinated in phase nine. Purchasing an estate, as you would
suspect, requires a considerable amount of paperwork. Your lender will employ a title agent
to do all of the paperwork to ensure that the seller is the legitimate owner of the land you're
acquiring.

Last step is to finish the sale. You will sign all of the papers necessary to conclude the
transaction, including the loan papers, at closing. After the paperwork is returned to the
provider, it normally takes a few days for the loan to be funded. You are able to move into
your new house after the check is sent to the seller.